Having a clear retirement plan can make all the difference in achieving your dreams. Retirement planning can include determining time horizons, estimating expenses, calculating required after-tax returns and estate planning.
Start by creating a budget to uncover opportunities to cut non-essential spending. Then, save any windfalls like raises and bonuses to invest automatically.
If you begin saving early enough, compound interest will work in your favor. For instance, investing $5,500 per year between the ages of 25 and 35 will save nearly $620,000 when you retire.
Expenses that may pop up during retirement, such as car repairs, home maintenance and healthcare costs, are easier to handle when you have savings. Savings can also help you pay off debt and avoid high-interest rates.
The typical advice is to save enough to replace 70% to 90% of your pre-retirement income. You may need to add in other sources of income, such as a pension plan or rental property, and inflation factor. A financial planner can help you build a balanced portfolio.
Save for a Secure Future
The earlier you start saving and investing, the more your money will grow due to compound interest. The idea behind retirement planning Wyckoff NJ is to create a nest egg enabling you to quit working and do whatever you want with your life once you retire.
One way to do this is to set up an automatic deduction, where funds you’re earmarking for future expenses are sent directly from your checking account into a separate savings or retirement account. This keeps you from overspending and makes it easier to save.
It’s also a good idea to pay off credit card debt and downsize expenses to free up more cash for savings. You can also invest in certificate of deposit accounts, blue-chip stocks and even real estate to supplement your savings.
Create a Budget
Whether you’re already in your 20s or just entering retirement planning age, it’s not too early to take stock of your situation. Add up all the income you expect to receive during your post-work years: pensions, social security payments and any other money, such as rental income from property, that might come in.
List your expenses, too. Transportation costs will decrease without a commute, for example, and food expenses may decrease when you stop cooking meals at home.
Then subtract your expenses from your income to see how much you’ll need each month. Creating a budget is an effective way to control your spending and ensure you’re saving enough. A spreadsheet can also help you predict how your savings will look five or 10 years later.
Create a Savings Plan
While deciding how much to save for retirement is essential, creating a savings plan that helps you stay on track is equally important. Typical advice suggests that you need to replace 70% to 90% of your pre-retirement income through savings and Social Security to live comfortably in retirement.
But life doesn’t move in a straight line, and it can be easy to get off track if you run into unexpected expenses or don’t have enough to save every month. Fortunately, there are ways to get back on track later in life, such as making catch-up contributions to tax-advantaged retirement accounts and prioritizing your savings. Just make sure to start saving early. It will pay off in the long run.
Investing with an end goal in mind can help you stay on track. Try implementing the “pay yourself first” strategy, where you allocate a percentage of your paycheck automatically to retirement savings accounts. This will help you avoid spending those funds and can serve as a reminder of the long-term impact your investments can have on your retirement.
Generally, experts suggest trying to replace 70% to 90% of your pre-retirement income. You can use tools like a retirement calculator to estimate your future costs and help you decide how much you need to save. If you’re early in your career, consider investing in target-date mutual funds that automatically adjust and diversify their assets based on your planned retirement date. These funds are available in your employer’s retirement plan and through an IRA.